US Postal Service losses reach $7bn in year so far

Days before the US Senate returns to consider the future of the US Postal Service, losses at USPS have now reached more than $6.8bn in the year so far, with two more months yet to come in its current fiscal year. Reporting unaudited financial results for the month of July to US regulators yesterday, USPS revealed that its operating revenue in the fiscal year to date is 2.7% lower than the same period in 2010.

Last year, the Postal Service posted a full-year loss of $8.5bn, but this year is heading towards the $9bn mark.

The latest month’s results saw operating revenue 5.1% down compared to July 2010, to just over $5bn for the month, leaving a net loss for the month of $1.3bn.

Operating expenses that are under USPS control – rather than obligated government payments – were down 1.3% in the month, with a 6.6% year-on-year decrease in work-hours. For the year to date, controllable operational expenses are up 1% compared to the same period last year, partly because of fuel price increases.

An 18% increase in workers’ compensation costs came during July, as the Postal Service paid off thousands of staff to reduce the size of its workforce. It is currently seeking to cut 7,500 mid-level positions, though from next year is looking to cut thousands more processing and delivery jobs.

The July figures reveal a continuing 6.7% decline in total mail and parcel volumes, and though priority mail, express mail and other competitive services saw volumes grow by 6.3%, that segment of business only improved the overall picture by 0.1%, with market-dominant mail services dominating overall volumes.

July saw a 9% year-on-year drop in First Class Mail volumes and a 3.6% drop in Standard Mail. First Class Mail volumes have declined 6.7% year-on-year in the 10 months of 2011, and Standard Mail has seen volumes increase 3% thanks to a bumper winter period.

In the year to date, the Postal Service has “only” lost $1.7bn when ignoring its mandates to pay the federal government for its future retiree healthcare costs.

Under that mandate, set by Congress back in 2006, the Postal Service has paid out $4.5bn in the 10 months up to the end of July 2011.

Congress

Following on from last year’s major loss, the US Postal Service is running at full pace towards its legal borrowing limit of $15bn, but executives are still “cautiously optimistic” of getting some kind of support from Congress.

While it carries out its own dramatic cost-cutting campaign, planning to shutter 3,700 post offices and more than 300 of its 508 mail processing plants, the Postal Service has floated alternative options before Congressmen, hoping the lawmakers will act.

One path is what USPS has been seeking for months – action to allow it access to the $50bn-$75bn it has overpaid into its civil service pension fund, and $6.9bn overpaid into its federal retirement fund, and a potential deferment of its $5.5bn annual retiree pre-funding installments.

The alternative path, offered earlier this month, is for USPS to declare independence from the federal healthcare system, setting up its own system to control its costs.

Under both scenarios, the Postal Service is hopeful that Congress will give it the power to abandon Saturday deliveries – switching to a five-day week delivery service would save more than $3bn a year, a cost saving Postmaster General Patrick Donahoe has staked his reputation on achieving.

Ahead of a Senate committee hearing on September 6 – which could lay the foundations for a bipartisan Senate bill to assist USPS – Deputy Postmaster General Ron Stroman told reporters that there are still “fairly dramatic” differences between the Democrats and Republicans on Capitol Hill in how they want to tackle the USPS financial issues.

The differences are particularly apparent in the House of Representatives, where leading Democrats want to address USPS pension and healthcare payment arrangements while leading Republicans want to protect the taxpayer from what they perceive as a “bailout” with legislation that merely sets up conditions for the USPS to go into receivership.

The Senate looks more likely to achieve a bipartisan compromise, with a relatively good working relationship between leading postal reform proponents Democrat Senator Thomas Carper of Delaware and Republican Senator Susan Collins of Maine.

Stroman suggested that at this late stage, it is looking increasingly unlikely that Congress will be able to offer USPS access to overpaid pension funds, but that is why the Postal Service floated its alternative idea of running its own healthcare system earlier this month.

Stroman said: “We need to figure out how we can help Congress to bridge the policy gap – we need legislation this year if we are going to tackle the financial problems.”

The Deputy Postmaster General said projections were that without legislation, even with planned operational cutbacks the USPS was expecting to see its debt pushing past the $20bn level by 2015.